By Charles Owen on 8th January 2018
Charles Owen, founder and director of CoInvestor, weighs in on the impact of GDPR and other key pieces of legislation.
The alternative asset industry is experiencing a wealth tech evolution. This change is dramatically gaining pace this year due to some stiff compliance with new EU regulation. For example, this month has seen both the PRIIPs and MiFID II come into force… Both of which require alternate asset fund managers to disclose additional information on products. This information will enable investors to better understand risk, performance and costs when comparing investment products for the benefit of advisers and their clients. Later this spring, in May, the GDPR will increase competitive data mobility within the EU Digital Single Market, reduce the administrative burden and strengthen data protection rights of individuals. Together these three regulatory drivers will impact the industry in ways that are still to play out.
Of course one thing is clear, all these regulations have been created with the end investor’s interests and protection in mind, and to bring more transparency to the financial services industry. And many say it is about time. When it comes to the alternative assets sector, historically it has been notoriously opaque. This has been far from ideal for finding great investments and alpha, or for ensuring the best investments are made for the end investor.
In my view change can only be a good thing. And although change has begun, the regulatory reforms will only speed up the process, and mean that alternative asset firms will have to introduce much more stringent compliance strategies than they have hitherto recognised.
These three sets of regulations represent the first time all parts of the funds industry, including the smaller players in the alternative assets sector, will have to step up with better data management. Better means that it will be insufficient for adviser firms to continue to hold their clients’ alternative asset performance data on error-prone spreadsheets, or to provide reports derived from infrequent, paper-based valuations from product providers. All firms will need to increase transparency and will have to establish a culture of monitoring, reviewing and assessing data processing procedures. Overall, this is expected to translate into a pronounced shift towards the institutionalisation of the alternative asset investment sector.
One trend has been the move to digitise the investment and reporting process, which in certain sectors of the financial services industry has clearly been a long time coming, especially compared to other many other business sectors outside financial services. One thing is clear, financial advisers cannot continue to track client information simply by using paper-based trails, neither will it be sustainable to continue reporting assets back to clients via simple spreadsheets. The regulatory compliance developments from MiFID II, PRIIPs and GDPR ultimately mean that financial advisers will have to digitise their processes if they have not done so already. Such a move towards digitisation would effectively bring about the institutionalisation of the entire funds processing system, incorporating even the traditionally niche area of alternative assets and bringing it into the mainstream.
The key for advisers and smaller managers to staying on top of these compliance challenges is digitisation, and the use of innovative wealth tech. For example:
As the alternative assets industry matures we can look forward to digitisation not only being the answer to compliance. The added benefits will be the ability to deliver enhanced, timely, useful data leading to better client services and improved customer relationships. Putting investors interests first will be core to the wealth tech evolution.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.